How to Get the Best IRA CD Rates

An IRA CD, or Certificate of Deposit, is an FDIC-insured investment with which you can complement your existing 401k and retirement savings.  

How does the interest rate on a savings account compare with IRA CDs?

CDs give you higher rates of interest compared to conventional saving accounts. When you decide to invest in a CD, it is done for a specified time period. At the end of this period, you can cash out the CD. Obviously, the longer the money stays in the CD, the higher your rate of interest. IRA CDs are a great way to save with high interest, but you have to be sure not to make premature withdrawals.  If you do, you incur a penalty.

I am 40 years old. Are IRA CDs a good option for me?

If you are young, IRA CDs are suitable for you. Considering that you are probably going to hold them for a long time, you can expect the investment to grow at a high rate of interest. If you are close to retirement, you may need the money sooner – so think twice about IRA CDs. Of course, it all depends on how much you expect to earn.

How do I calculate my IRA CD rate of return?

To calculate this, you need to know the following:

  • Annual percentage yield, or APY
  • Annual percentage rate, or APR

What are APY and APR?

The APY is the rate that lets you calculate the expected earnings from your CD until it matures, with compounded interest. With a CD, interest is usually compounded daily for higher returns. So, you are not confined to investing in a bank that gives you a low APY.

The APR is the stated interest rate of return on the CD, not taking into account compounding.

But how do I compare IRA CD rates? I want the best deal!

Good question! Obviously, you want the best return from your retirement investment. Here is what I did, and I’ve divided it into a four-step process to make it simple:

  • Step 1 – Begin by looking at the duration of your IRA CD. The longer the investment term, the higher the interest rate. Think about whether you are likely to need the money for any major reason and when.
  • Step 2 - Put together a list of banks in and around your area and phone them to get the existing IRA CD rates. What you are doing now is shopping for rates, since these can vary from institution to institution. Write down the info you collect.
  • Step 3 – Get IRA CD rates online from bank websites. You will probably need to provide your ZIP code to get the prevailing interest rates in your area. Write down anything that is attractive.
  • Step 4 – Also look at online banks that do business exclusively online or through phone banking. These banks might offer better rates thanks to relatively low overhead.

Remember, some banks change their interest rates daily. If you come across a rate you want to lock in, call the bank to open your account right away. Be sure check the kind of FDIC insurance you are eligible for before you open your account, since there is a limit of $100,000.

Are IRA CD rates different from regular CD accounts?

Typically, whether you buy a CD just as a CD or as part of your IRA, the rate is usually the same.

With an IRA CD, you have two major differences: First, your interest will be tax-free.

Second, you have a limit on your investment in the IRA each year. With a regular CD, there is no limit.

Depending on how close you are to your retirement, shop around and then make an informed decision.


Return from IRA CD Rates to Individual Retirement Account


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